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56 P R A C T I C A L W I N E R Y & V I N E YA R D April 2015 W I N E B U S I N E S S John Heffner, Dickenson, Peatman & Fogarty, Napa, Calif. BY ALWAYS READ THE CONTRACT They wrecked your wine but won't pay Y ou send your Chardonnay to a custom-crush facility for bot- tling. One month later, the wine in one of every 10 bottles is brown — oxidized in the bottle. You are forced to pull all your Chardonnay from the market at significant expense, and you fear your brand has suffered. All evidence suggests the wine oxi- dized during bottling. Surely the cus- tom-crush facility will step up and compensate you for your damages? To the surprise of many vintners, the cus- tom-crush facility may escape much or all liability based upon the language in its contract. Contractual limitations of liabil- ity can protect custom-crush facili- ties, among others, from liability. In California, as in most states, compa- nies can dramatically limit their liabil- ity to commercial customers. Companies include clauses in their contracts with customers that exclude liability for negli- gence, lost profits or consequential dam- ages, among other things. These clauses are powerful. If some- thing damaging occurs (like oxidized wine), these clauses can shift liability from the company to the customer — or, in this example, from the custom-crush facility to the vintner. These clauses, if drafted properly, could protect the cus- tom-crush facility from liability for lost profits, from liability for any damage to the vintner's wine brand and from liabil- ity for consequential damages. Additionally, these clauses might even limit any available damages to an amount based not upon the retail value of the wine or even the wholesale value of the wine, but rather the value of the wine as bulk wine. California courts will enforce contrac- tual limitations of liability, but courts interpret these clauses very strictly. Consequently, those clauses should be well-written and clear. There should be no ambiguity. Courts will not enforce all contractual limitations of liability. There are, how- ever, exceptions to the enforceability of these clauses. Parties cannot limit liabil- ity for fraud, willful injury to persons or property or for violations of the law — even if those violations are negligent. While parties can limit liability for negligence, parties cannot limit liability for gross negligence. Courts explain that gross negligence is the "lack of any care or an extreme departure from what a rea- sonably careful person would do in the same situation to prevent harm to oneself or to others." (See Judicial Council of California Civil Jury Instructions (CACI), Instruction No. 425.) In other words, these contractual limitations can limit liability that results only from an acci- dent and not from intentional acts or real sloppiness. Contractual limitations of liability can dramatically reduce available dam- ages. Contracts can attempt to limit the amount of damages. For example, the custom-crush facility in this example might include a clause valuing the wine at $5 per gallon. A court may enforce this valuation, even if the vintner intended to sell the wine at $35 per bottle. The vint- ner, after all, accepted the $5 per gallon valuation when he agreed to the contract with the custom-crush facility. Say the vintner had 1,189 gallons of Chardonnay at the custom-crush facility, and the custom-crush facility bottled it to yield 500 cases of wine. The vintner may have intended to sell that wine at $420 per case ($35 per bottle). But, some of the wine oxidized, and the vintner had to recall the wine to protect the brand and image. The 500 cases of wine would have retailed for $210,000. The custom-crush facility, how- ever, offered only $5,944 based upon the contractual valuation of $5 per gallon. Depending upon the contract language, that may be all that the vintner could recover, despite actual damages in excess of $200,000. That would represent a stag- gering loss for the vintner. T T L I N G N T R A C T 58 An In Vivo Study: Sanitation of wine cooperage with five different treatment methods By Maria de Lourdes Alejandra Aguilar Solis, Chris Gerling and Randy Worobo 66 Small winery lending: SBA loan through a credit union By Tawnya Lancaster 69 Book Excerpt: The WEST Without WATER By B. Lynn Ingram and Frances Malamud-Roam T E C H N I C A L R E S O U R C E F O R G R O W E R S & W I N E R I E S Don Neel, Editor practicalwinerylibrary.com Access Practical Winery & Vineyard article archives online.